foreign issues in annual questionnaire

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#1
JAD  
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This is the foreign section of my annual questionnaire. I've been bitten twice when clients did not answer the questions correctly. I want to ask the appropriate questions both for them and for me. I put this together several years ago. Suggestions? Feel free to use any or all of this in your questionnaire, if you want.

Congress and the IRS have been in an uproar over foreign issues for several years. There are several disclosure forms that are at issue, and the penalties for not filing any required form are enormous. Some failures to file also cause the statute of limitations on your return to remain open. The following questions are intended to address specific forms that might be required. Securities maintained in an account with a financial institution located in the United States are not an issue. If you have any foreign assets or foreign relationships that are not covered by these questions, please be sure to call the issues to my attention.¶

[YNHEADING]¶

[YNBOX]Did you have an interest in or signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? In other words, do you have the authority, alone or with another, to control the disposition of assets held in a foreign financial account? ¶

[YNBOX]Did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust?¶

[YNBOX]Do you have an interest in a foreign estate?¶

[YNBOX]Do you own any foreign stocks or securities issued by a non-US person or entity that are located somewhere other than in an account with a United States financial institution?¶

[YNBOX]Do you have a foreign retirement account?¶

[YNBOX]Do you own real estate in a foreign country?¶

[YNBOX]Do you have a financial instrument or contract held for investment that has an issuer or counterparty that is other than a U.S. person? This may be in the form of an interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterparty.¶

[YNBOX]Do you own a capital or profits interest in a foreign partnership?¶

[YNBOX]Did you make any contributions this year to a foreign partnership or corporation?¶

[YNBOX]Are you an officer or director of a foreign corporation?¶

[YNBOX]Do you own a note, bond, debenture or other form of indebtedness issued by a foreign person?¶
 

#2
Wiles  
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I can tell you use Lacerte.

That's a lot of foreign questions. Do you think it can be summarized into one question that basically says, "Do you have any direct or indirect ownership or authority in any foreign financial account, investment or entity?"
 

#3
JAD  
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Possibly. But the specific questions have saved me twice from the client being able to say that I didn't ask the right question, so at least for me, the detail is worth it. I guess that's what I'm asking here - is there anything else that I need to ask, or a different way that I need to phrase the question, to protect myself?
 

#4
Frankly  
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Work a proactive approach instead of from a defensive stance.

I ask the one question posed by Wiles, and if the answer is in the affirmative, we have a discussion where the other questions are asked as may be needed.
 

#5
sjrcpa  
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After this
[YNBOX]Did you have an interest in or signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? In other words, do you have the authority, alone or with another, to control the disposition of assets held in a foreign financial account? ¶
I add:
If yes, did the value of the account(s) exceed $10,000 on any day in 2017?
 

#6
JAD  
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Frankly, the problem is when the client answers in the negative. If my question is too general, then the client could say that I was not specific enough. As I mentioned, I've been saved twice due to my specificity, where clients have answered all of these questions in the negative. There is no issue as to whether or not I asked the question, whether it was not specific enough.

sjrcpa, thanks.
 

#7
Frankly  
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JAD wrote:... the client could say ...

That's a defensive posture. Clients can say anything they want, and they do, and it doesn't amount to a hill of beans. You asked the foreign financial question and they said "no". End of story.
 

#8
JAD  
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Not end of story. Client can more easily accept responsibility if the questionnaire that he refers back to is detailed and clear. You do it your way; I will stick with mine.
 

#9
Wiles  
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Here is what we do:

Engagement letter says this:
All U.S. citizens or residents are required to report their worldwide income on their U.S. income tax returns. All U.S. citizens or residents are required to report all bank, financial assets, and interests held in a foreign country for which they have a direct or indirect ownership or signature authority. It is your responsibility to inform us of this information. There are significant penalties for failing to report this information.

Questionnaire says this:
[YNBOX]Did you have any foreign income or pay any foreign taxes?
[YNBOX]Did you have a direct or indirect ownership interest in or signature/other authority over any foreign financial account, entity, trust, estate, pension or other foreign asset? Were you the beneficiary of a foreign gift or inheritance?

Don't tell the DOJ, but we also practice targeted profiling and make sure we chat about foreign stuff based on their ethnicity.
 

#10
JAD  
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Thanks, Wiles. Good suggestions.
 

#11
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JAD wrote:Not end of story. Client can more easily accept responsibility if the questionnaire that he refers back to is detailed and clear. You do it your way; I will stick with mine.


I don't feel professionals can plead the 'I didn't know' approach as easily as they once could. I think JAD's approach is the more thoughtful and valuable to the client. I don't have a lot of folks that fall into this, but I ask very careful questions of the few that I do.
~Captcook
 

#12
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Just throwing a dart at a dartboard here: Is there some middle ground where you could have a broad question "Do you have any involvement with assets held outside of the USA?" and if they answer yes, they answer the foreign questions, but if they answer no they can skip them?
 

#13
jon  
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I think all of my engagement letter have become to long, but if you go to samples from liability insurance carriers they are huge. We do not file anything until a signed copy(ies) are returned. Electronic filing has been a big help. We also have a couple of checklists that they are required to complete and send back before filing.
 

#14
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Not to resurrect a dead horse with this thread, but I'm preparing and getting out an engagement letter for a 2018 short-year partnership return for a client.

Here's what all of my 1065 engagement letters say on the matter:

...

As part of your filing obligations, you are required to report the maximum value of specified foreign financial assets, which include financial accounts with foreign institutions and certain other foreign non-account investment assets that exceed certain thresholds. You are responsible for informing me of all foreign assets, so I may properly advise you regarding your filing obligations.

...


Emphasis added.

Will evaluate my checklists later down the road when I prepare the 2019 year engagement letter templates, probably in the last week of December.

I also take the same unofficial stance as Wiles. If they're a first gen American, have an accent, or have extended family overseas they get the in-depth foreign asset filing obligations conversation/interview. Expats by default get it as well. Most of my expat prospects know about FBARs but not 8938s.
 

#15
makbo  
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ManVsTax wrote: If they're a first gen American, have an accent, or have extended family overseas they get the in-depth foreign asset filing obligations conversation/interview.

These are probably the clients who will care the most about providing you with complete and accurate info, once they know it's required. It's all those other clients trying to evade U.S. taxes on foreign holdings that you have to worry about. :| (That has been my personal experience, anyway).

Wiles wrote:Don't tell the DOJ, but we also practice targeted profiling and make sure we chat about foreign stuff based on their ethnicity.

If not getting "bitten" is the concern (OP says she has been bitten twice in this area), I recommend asking the same questions and having the same introductory discussions with all clients. Based on the response to this standard due diligence, then decide how much further to go with the discussion.

Just think, if there were a paid preparer due diligence penalty in this area, it would most likely work like the Form 8867 procedure, where you document in writing both the questions you asked and the answers provided.
 

#16
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If their priority is to evade US taxes / US filing obligations on foreign assets, no question or conversation I ask or engage in will produce a conclusion that a foreign filing obligation exists. (I presume)

At that point the language in my engagement letter, organizer, and/or documented written correspondence will solidify my standing. (hopefully)
 

#17
makbo  
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ManVsTax wrote:If their priority is to evade US taxes / US filing obligations on foreign assets[...]
At that point the language in my engagement letter, organizer, and/or documented written correspondence will solidify my standing. (hopefully)

I thought the concern here, from the OP, was that the client priority, if they got caught, would be to blame you, since you didn't ask them sufficiently detailed questions about their situation. Evading taxes is less risky if they can turn around and drag someone else into it to cover the big bucks penalties.

As has been expressed previously, it's a judgment call each practitioner is going to make, depending on their risk tolerance, insurance coverage, and other decisions they've made about how to run their practice. I guess I try to keep my due diligence for foreign assets at the same level as my due diligence for other substantial items on the return, neither more nor less. My engagement letter does not contain a lot of detail about specific due diligence requirements, and my Yes/No questionnaire only has a few questions about foreign accounts. It's worked well so far for me, knock on wood.
 

#18
JAD  
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Two bites: one when a client invested a substantial amount in a foreign corporation and the other was when I learned that a client was an officer in not one, but three foreign corporations. In both cases, clients were really irritated with me, as though I made the rules and procedures. It was a lot of work (and expense for them) to get everything straightened out. Both had answered "no" to the specific questions. Neither is first generation, has an accent, etc.
 


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